Asian demand for crude to drive switch to renminbi
Peter Alagos

The increasing demand for crude in Asian countries such as China was enough reason for the region to prepare to pay for trade in the Chinese currency renminbi (RMB), an HSBC official said.

Georges Elhedery, HSBC head, Global Banking and Markets (Mena), noted that the region was slow to adopt RMB since trade between the Middle East and China was still highly dependent on the greenback.

“The Middle East has been slow in adopting RMB but we’re starting to see a shift in the region towards the Chinese currency,” Elhedery told Gulf Times in a meeting with reporters at the HSBC offices in Doha.

He explained that minimal oil and gas exports to the West have made the region dependent on Eastern buyers such as South Korea, Japan, and China, which was critical in setting the international price of crude.

Elhedery stressed that the income of the region from energy reserves depended on China’s economic performance. “Considering how China fares would also be reflected soon in their currency as it becomes free-floating,” the HSBC official said.

As it becomes a free-floating currency, Elhedery said the Middle East would use RMB as part of the region’s currency reserves.

“The correlation, basically, is such that if they fare well, they are the end buyer that is setting the price and therefore we are going to be more dependent on them in terms of our income in this region,” he said.

Elhedery also noted that in the next two to 10 years, the goal of Chinese finance authorities, specifically the People’s Bank of China (PBOC), was to make the currency free-floating.

“Over the next 10 years, if there is something that is most certain in terms of how economically and financially the world is going to develop, I would say RMB becoming a free-floating currency is one of the most significant one. It is going to be a more relevant currency,” he stressed.

Elhedery explained that the evolution for RMB as a currency followed a series of stages: transaction or trade-related, becoming an investment currency, and use of RMB as a reserve currency. "I think this loop is manifesting itself and as the currency is becoming more flexible towards free-floating, clearly this means that as a region, we should adopt that extra layer or stage in the RMB development," he said.

As a reserve currency, Elhedery said he expected RMB to go forward in the region citing some African countries that had already allocated part of their foreign reserves to yuan.

"We hope and think that this region would be stepping up to that," he said.

When asked about HSBC's forecast on the growth of RMB in the region, HSBC CEO Abdul Hakeem Mostafawi said the bank was not expecting growth soon.

"But one needs to be prepared for it and Qatari authorities believe that we need to be ready. Our trade with China is significantly increasing on the back of oil and gas and we need to be prepared if we want to take that position for reserves or take position for trade," Mostafawi said.

Elhedery added, "We are not looking at it as a 2015 opportunity although there is a lot to be done in 2015. We're looking at it as a 2020 cycle or a long opportunity. But if you want to be there in 2020, you have to start now."

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